Actuarial gain/loss refers to the changes in the value of a company’s pension obligations or post-employment benefits that occur due to differences between expected and actual demographic or financial assumptions. These assumptions include factors such as employee turnover rates, life expectancy, salary increases, and investment returns on pension plan assets.
In finance and payment sectors, actuarial gains and losses are crucial for accurately assessing the financial health of pension plans or similar obligations. When actual outcomes differ from the projected assumptions, it can lead to unexpected costs or savings. For example, if retirees live longer than expected, the liability of the pension fund may increase, resulting in an actuarial loss. Conversely, if investment returns exceed expectations, the fund may enjoy an actuarial gain.
Tracking these gains and losses helps organizations manage their financial statements and obligations effectively, ensuring that they maintain adequate funding for future liabilities. Understanding and addressing actuarial gains and losses is essential for sound financial planning and ensuring the long-term sustainability of pension funds.
